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Plenty of small businesses need to borrow money. It’s a normal and necessary part of the small business life cycle, and no matter why your business needs the extra boost in capital, there are lenders out there that can serve you. These days, that means online applications and quick underwriting processes. Sometimes that means that brick-and-mortar banks are left behind.
Although many banks and other traditional lenders are switching their services to the Internet, you’ll still have to wait while your loan is processed, and your business may suffer in the interim. Compared to typical bank loans, online lenders offer a range of features to borrowers and build a relationship that you can rely on for years to come.
Online business loans are known for faster processing and funding times. Compare the turnaround times of these top online business loan providers.
As fast as one business day | $5,000 | $500,000 | Annual business revenue of $42,000+, 9+ months in business, 620+ personal credit score | ||
As little as one week | $5,000 | $500,000 | 12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better | ||
As fast as 24 hours | $5,000 | $250,000 | 600+ personal credit score, 1 year in business, $100,000+ annual revenue | ||
Next business day | $500 | $250,000 | 1+ years in business, $100,000+ annual revenue or $4,200+ monthly revenue over last 3 months | ||
$5,000 | $500,000 | At least 3 months in business with $10,000 in monthly revenue or at least 6 months in business with $3,000 in monthly revenue. | |||
Several business days | $10,000 | $5,000,000 | In business for 3+ months, $120,000+ in annual revenue, meet personal credit score standards | ||
$5,000 | $10,000,000 | Must have good credit and at least 6 months in business. | |||
As little as 72 hours | $5,000 | $500,000 | 6+ months in business, $12,000+ monthly revenue, no open bankruptcies | ||
Varies by loan type | 3+ months in business, $100,000+ annual revenue | ||||
Within one or two business days | $5,000 | $250,000 | 1+ years in business, $300,000+ annual revenue, decent credit score |
It may seem like every online lender offers the same thing, but that doesn’t make it true. Like any loan option, compare the features of the loan and the rules set by the lender to make sure you’re getting the best deal. The brands listed below have some features in common, giving you a solid way to kick off the comparison process.
Some bank lenders might spend hours questioning you and asking for documentation, take several days to process your application and weeks to actually get you the money. By comparison, newer technology-focused lenders can get it done in minutes and provide money within a few days.
There’s no secret here. Technology lets these lenders do it faster. Because they already have many existing systems in place, some big banks can’t easily integrate this new technology and so they are left doing things the old way.
When you borrow money from a bank, you’ll be assigned a case manager. This person will look over your finances to try and get a sense of your business’s strengths and needs. After checking both your personal and business credit report, the bank decides whether to approve you for a loan. Overall, the process can take a few days or weeks.
When you borrow money from a technology-focused lender, your business data is plugged into an automated system and asks you questions about your business through an online form. Your data is assessed by the online system to make a decision as to whether to approve you and if so, for how much.
Many online business lenders tout their high rate of loan approval, even for unsecured or no doc loans. In the face of financial downturns, banks tightened their business lending requirements and have yet to fully loosen them. Small business lending is risky compared to a bank’s other revenue streams, and implementing new technology to approve these loans is costly and time-consuming. To compensate for these factors, banks have stricter lending requirements.
This is where online lenders step in. Because they already have the technology in place, it’s easier to approve businesses that may not stand a chance when applying at a bank. Here’s a few reasons why online lenders have the edge over banks:
In short, banks have higher overhead costs when considering loans, and small business lending only makes up a tiny portion of their total revenue. This makes these loans riskier and banks are likely to turn down anyone who doesn’t have a strong application with collateral to put up against the loan.
By comparison, online small business lenders have very low overhead costs and many specialize in business lending. These lenders use automated approvals processes because they’re fast and accurate. This translates to more approvals so you have a better chance of getting the loan your business needs.
It depends on your business and what type of financing you’re after. The number you receive varies between banks and lenders. Generally, you can expect lower interest rates with secured bank loans, similar interest rates for unsecured bank loans and unsecured online business loans, and fewer fees with online business loans.
Because they accommodate riskier clients and provide more benefits, you can typically expect higher costs overall from online lenders than from banks. It’s important to remember that interest rates and fees are usually personalized for your circumstances depending on the lender, and you should work out the total cost of a loan before borrowing.
You should also be aware of any special rates and fees offered. Each online lender will do things differently, and depending on your needs, these costs might be more or less expensive than traditional fees and interest rates.
When comparing, keep in mind that annual percentage rate (APR) will be the best way to examine the total cost of a loan. Although one provider may have a lower interest rate, its fees could make it more expensive than a similar loan with a larger interest rate. Take your time finding the right loan, and consider contacting an accountant to help you find a good loan option.
The ideal loan for your business relies on your unique circumstances, so every loan should be considered critically. Ideally, you, your business partners and accountant should weigh the pros and cons of your options and weigh the cost benefit before signing a contract.
However, consider these guidelines as a starting point:
Online lenders are filling the gap for small businesses that may not have the credit to qualify for a traditional loan. By using modern technology, lenders have reduced the time it takes to get approved and have your loan deposited into your account. These are generally more expensive, but if your business needs a loan, comparing your options will help your business stay ahead of the game.
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